Key Highlights
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The Schwab U.S. Dividend Stock ETF has achieved an average annual return of 12.3% since it started.
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This fund’s strategy is designed to keep generating strong total returns.
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It has great potential as a long-term investment.
The Schwab U.S. Dividend Stock ETF ((NYSEMKT: SCHD)) stands out as one of the largest and most sought-after ETFs with a dividend focus. Currently managing over $75 billion in assets, it ranks as the second biggest among its peers.
This fund boasts a solid track record for delivering impressive returns. If you’re pondering whether to invest $2,000, it might set you on a path to substantial wealth in the future.
A Broad Selection of ETFs
Since its launch in late 2011, the Schwab U.S. Dividend Stock ETF has consistently benefited its investors. With an average return of 12.3% annually, a $10,000 investment could blossom to nearly $30,500. That’s a decent gain, but still a long way from a million.
Building a million-dollar portfolio is a lengthy process. Investing $2,000 in a fund with a 12.3% average return could take around 54 years to hit that million mark. So, unless you’re quite young, simply investing $2,000 won’t likely make you a millionaire before retirement.
However, you might accelerate that timeline with additional yearly contributions. For example, if you were to add $1,000 annually, you could potentially reach millionaire status in about 42 years. Increasing that to $2,000 per year shortens it to roughly 36 years.
Of course, this is all based on the notion that the fund continues to generate returns similar to its historical performance. While nothing is guaranteed, its approach seems to place it in a good spot for decent future returns.
A Smart Investment Approach
The Schwab U.S. Dividend Stock ETF employs a straightforward investment strategy, aiming to passively track the Dow Jones U.S. Dividend 100 Index. It focuses on high-yield dividend stocks with a reliable dividend payment history. The fund evaluates companies based on various dividend quality metrics, including yield and growth rates, striving to align with the best dividend growth stocks available.
It’s interesting to note the emphasis on dividend growth. Research by Ned Davis and The Hartford Fund suggests that companies with strong dividend growth tend to outperform the broader market over time.
| Dividend Policy | Average Annual Total Return |
|---|---|
| Dividend growers and initiators | 10.2% |
| Dividend payers | 9.2% |
| No change to dividend policy | 6.8% |
| Dividend cutters and eliminators | -0.9% |
| Non-dividend payers | 4.3% |
| Equal weight S&P 500 index | 7.7% |
By targeting high-quality dividend growth stocks, the Schwab U.S. Dividend Stock ETF is positioned to match or even exceed the performance of average dividend growth stocks in the long run. Historically, it has achieved an average return of 12.3% since inception and 11.4% over the last decade.
Currently, the fund remains well-placed to continue generating substantial returns. For instance, in its latest annual rebalancing, the average yield for its 100 holdings was 3.8%, with dividends growing at an average of 8.4% annually over the past five years. Assuming these trends persist, the average annual total return could indeed exceed 12%.
There’s no definitive assurance that the dividend stocks within the fund will achieve those future returns. However, given its historical performance and the solid growth of its current holdings, one might consider this outlook cautiously optimistic.
ETFs With Wealth Potential
Even if you leave a $2,000 investment in the Schwab U.S. Dividend Stock ETF without further contributions, reaching millionaire status may not happen in your lifetime. But by making additional yearly investments, your chances of achieving that goal can notably improve over time. With a strong history of solid returns, the fund looks likely to keep up its performance.
Considering an Investment in Schwab U.S. Dividend Stock ETF?
Before buying shares in the Schwab U.S. Dividend Stock ETF, take a look at this:
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